Can External Shocks Explain the Asian Side of Global Imbalances? Lessons from a Structural VAR Model

(with Cyriac Guillaumin (University of Grenoble))

Abstract:

During the last decade, we observed the accumulation of global imbalances resulting primarily from massive current account imbalances in the US and in Asia. Most of the attention has been focused on the US side of global imbalances and few studies have been dedicated to large current account surplus in Asia. The aim of this paper is to study the impact of external shocks on East Asian countries in order to determine if these can account for the Asian side of global imbalances. The three external shocks consist of an oil shock, a US monetary shock and a US financial shock. We estimate a structural VAR model with block exogeneity using contemporaneous and long-run restrictions. Our main findings are as follows: (i) external shocks account for the current account surplus in Malaysia, the Philippines, Singapore and Thailand and, to a lesser extent, in Japan, Korea and Indonesia; (ii) the oil shock and the US monetary shock seem to have influenced current account balances through real and monetary channels and the US financial shock through financial channel.

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